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Flashcards in Company Law Deck (53)
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1

Tell about agreement over a company

A number of people come together to carry a business, those members have voluntarily agreed to a common business purpose and to run it in the company format.

2

Tell about The Companies Act 2006

It governs the formation, running and possible dissolution of a company.

3

Tell about the company registration process under the Companies Act 2006

Under the Act, a company is formed once the registration process with the Registrar of the Companies is complete and a certificate of incorporation has issued.

4

Tell about two types of companies

1) Public companies
2)Private Company
Both have distinguished feature of limited liability for their members, limited to the amount of finance what they put into the company. (Personal Wealth is safe)

5

Tell about the Historic perspective of limited liability

Granted by the Parliament with Royal Charter to individual companies case-by-case. Only restricted to companies who needed a lot of capital, helped to reduce the risks of those who borrowed finance. The Charter's were given to companies involved in highly speculative and complex business activities which required a lot of capital investment (e.g. The Hudson Bay Company, East India company)

6

Tell about the railway boom connected to company context

For railways, there was need to raise large amounts of capital in highly speculative ventures, was driving forward two acts:
-Joint Stock Company Act 1844
-Limited Liability Act 1855.
Railways were private investment of innovators who saw the need for railways, these acts allowed to buy shares and made it easy to buy shares, providing protection for those investing. These act made it possible for all companies to enjoy limited liability for their members, simply by registering and complying with the act.

7

Why it was earlier case-by-case granting of limited liability?

There was a concern that limited liability would be used for fraud purposes, and avoiding paying the debts. Ties to Solomon v Solomon case

8

Tell about Solomon v Solomon case

The creditors of the company took Mr. Solomon to court and the case was heard on appeal by the court of House of Lords, the Law Lords affirmed the intent of Parliament to bestow limited liability and separate legal personality upon companies that have registered under the appropriate Acts.
The creditors were not able to hold him personally liable for the debts of the company. Mr. Solomon’s personal assets were safe behind the veil of incorporation.

9

That are the advantages of a company? (7)

1)Separate legal personality (owns property in its own name and can be sued in its own name)
2)Limited liability
3)Separation of control (shareholders take active part by voting, but external managers tend to be brought in and tasks are delegated)
4)Shares (dividends and voting rights)
5)Management (bring experts to care for the company)
6)Perpetual decision (planned to go on as long as profitable, or as long as shareholders want it to go)
7) Floating charge (security eg. over the assets)

10

Tell about the disadvantages of a company (5)

1) Formalities (related to running of the company)
2) Disclosure (a lot of information needs to be public, public and enemies can study your company)
3) Complex rules, especially related to taxes
4) Costs (double taxed)
5) Lack of flexibility - you have to act upon the rules, and people losing control more you put out shares

11

Consequences of incorporation

The fundamental premise of the company law is that a company is a separate legal and distinct entity, which creates a barrier between the owners/managers and the company itself. This veil refers to Limited liability and is called Veil of Corporation.

Courts are very reluctant to lift this veil and only do so if there is evidence that the company is being used as a facade or sham, concealing a fraud.

12

Tell about Gilford Motor Co. v Horne case

Horne was a former employee of Gilford Motor Co. and he set up a company to compete with Gilford and Motor Co, undercutting their prices. The company had put restrictive covenants on Horne himself, so the company went after him that he had violated non-compete clause by setting up the company. The court agreed, Horne set up the company to evade his contractual obligations (the court pierced the corporate veil) and ordered an injunction against Horne.

13

Tell about a Public company

- Is allowed to sell shares via listing in the LSE but needs to have either Public limited company or Plc after its name
-Only PLC can be part of LSE

14

Tell about a Private companies

- Not allowed to sell shares to the public
-Not listed in LSE
-Has Private limited company or Ltd after its name
(indicator for creditor for limited liability)

15

tell about Registering the name and company

Section 53 of the 2006 Act dictates the type of name the company may chose to register under.
Registration is carried out by promoters who act on behalf of the prospective company completing the necessary documentation

16

Tell about Part 41 of the act

Business name regulations in Part 41 of the 2006 Act that cover all types of business from the sole trader upwards

17

Where is the registration information stored?

Filed with the Registrar of Companies at Companies House

18

What are the necessary documentation? (4)

1)A memorandum of association
2) Articles of association
3) A statement of Compliance with the 2006 Act
4) An Application form

19

Tell about a memorandum of association and what it includes?

A legal statement signed by all initial shareholders or guarantors agreeing to form the company, and have agreed to become members of the company and the share capital. You cannot update the memorandum once the company has been registered.

20

Tell about Articles of Association and what it includes?

Written rules about running of the company agreed by the shareholders and guarantors, directors and the company secretary. e.g. Internal management.
Includes The objects clause which is under section 31 of the 2006 Act

21

Tell about the application form

Comprises the name of the proposed company, address of its registered office, type of company format, company secretary and directors, the subscriber's details and the share capital details along with any differing classes of shares.

22

What is The Objects Clause (section 31 of the Act)

Unrestricted under the act, unless the members of the company choose to restrict the objects, e.g. not to engage in animal testing

23

Tell about the directors and the board

Directors are people who comprise the Board of Directors, this board oversees the management of the company and acts on behalf of the owners of the company (the shareholders). Two types of directors,
1) Executive
2) Non-executive

24

Tell about an executive

The executive director is an employee of the company and therefore works for the company

25

Tell about a non-executive

The non-executive director is not an employee of the company, they sit on the board in a supervisory capacity overseeing the functions of the executives and the company

26

Tell about the running of the board

The board is run by the Chair who is normally a separate individual from the Chief Executive Officer, who runs the management of the company.
The board is the agent of the company and is responsible for management.

The board determines the overall policy of the company and leaves the day-to-day management to the appointer managers.

27

Tell about the private company's board

Every private company must have at least one director (most companies have more)

28

Tell about the public company's board

Must have at least two directors (most companies have more)

29

Tell about board meetings

Two types
-Board alone
-Board with shareholders (once or twice a year).

30

Tell about the shareholder board meetings

Held once or twice a year. These are run by voting bases, Chair chooses if a tie.

The meetings of shareholders + board are the only moments when shareholders are update over the business and can instruct the agents regarding the running of the business for upcoming year.